Britain is facing a more severe credit crunch than any other country in the
developed world, the International Monetary Fund said yesterday.

The UK faces a so-called annual "financing gap" of £215bn – 15pc of gross domestic product – this year and next between what people need to borrow to keep the economy in good health and what they actually can lay their hands on.

This compares with a gap of a mere 2.4pc in the US and 3pc in the eurozone. The Fund, presenting its closely-watched Global Financial Stability Report, also indicated that the Bank of England would have to persevere with its radical Quantitative Easing (QE) programme for much longer in order to compensate for the debt famine.

Although the IMF presented its most upbeat assessment of the world's financial system since the onset of the crisis, declaring that the world was now "on the road to recovery", it said the UK is "most susceptible to credit constraints... given its significant reliance on the banking channel and the projected sharp decline in domestic bank balance sheets, as well as substantial public financing needs."

Jose Viñals, lead author of the report, said: "That means that either there is continuing support on the part of the authorities to underpin the credit process or there will be high lending interest rates and credit will be constrained".

The warning underlines why the Bank's Monetary Policy Committee has committed to a far bigger QE programme than any other major central bank, as it battles the deflationary forces conjured up by this lending shortage.

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In a speech in Belfast, new MPC member David Miles said QE "is having an impact that is relevant to economic conditions right across the country... not just in financial markets but in high streets and factories and homes throughout the UK."

The IMF's calculations will undermine many economists' assumptions that the Bank will soon end its QE scheme.

In a further blow to the UK in particular, the Fund said that Britain and the US are exposed to "home bias" - the likelihood that investors from around the world choose to withdraw their cash.

The report said: "Over the past decade, mature market economies running significant fiscal deficits have been able to limit increases in domestic interest rates by tapping foreign savings from emerging market central banks, oil exporters, and sovereign wealth funds. If foreign investors become concerned about long-term fiscal sustainability in these countries, interest rates on government securities would need to adjust higher and the exchange rate would depreciate."

The Fund reduced its estimate of losses derived from the global financial crisis from $4 trillion (£2.5 trillion) to $3.4 trillion, saying that the improvement was due largely to the sharp increases in asset and equity prices around the world over the past six months.

However, it said that losses facing banks specifically, as opposed to the broader financial system, remained unchanged at $2.8 trillion, of which more than half still has yet to be recognised.